Over decades, Vietnam has emerged as a favored destination among foreign firms looking to invest in many sectors. Since Vietnam offers a lot of potential for foreign investors, especially for those who are looking to venture into Southeast Asia. According to the World Bank, Vietnam has moved from being one of the world’s poorest nations into a lower middle-income country over the past three decades...
Here are some facts updated in 2019 proving why Vietnam has become more of an attractive destination for investment.
Consistently strong growth
Associate Professor, Dr. Dang Van Thanh, Chairman of the Vietnam Association of Accountants and Auditors, said that Vietnam is reaching a growth rate of about 6% and the figure is expected to reach 6.7% this year. The number of registered enterprises increased significantly, while the number of dissolved enterprises decreased. Budget collection and expenditure still reached the desired target.
Regarding infrastructure, in the next five years from 2019, the investment in this sector is about 7.3% of the total GDP. The main investment source depends on FDI. Along with that, the private sector will get more involved in infrastructure and will change the overall picture of infrastructure. There is also a positive impact of the investment flows into increased imports, exports, transportation and tourism, then resulting in the increase in number of tourists entering Vietnam, which in turn stimulates development of infrastructure.
Red tape to be cut in 2019
Government announced to make resolutions on improving the business environment and national competition from 2019 to 2023. The resolution reflected the Government’s determination to cut red tape for businesses this year with detailed targets and specific deadlines. As a result of this, company licensing procedure is increasingly being digitalized, this makes the process become faster than ever.
According to Mr.Tuan who is head of the Việt Nam Chamber of Commerce and Industry (VCCI)’s Legal Department, the Government’s target of having 1 million firms by 2020 was challenging given the fewer-than-expected number of new firms set up. This means government is seeking many ways to prevent bureaucracy and cut down on official processes.
In fact, the local authorities were still slower in tackling problems raised by firms than ministries and ministerial-level agencies. Though it is known that reforms being still a long road for policies to benefit businesses, the room for positive changes remained large in the upcoming days.
Vietnam economy and free trade agreements
One key way of boosting trade and economic development is through participation in free trade agreements (FTAs). Over the past few years, Vietnam has been active in signing bilateral trade agreements with countries throughout the world. Additionally, due to its membership in the Association of Southeast Asian Nations (ASEAN), Vietnam has become a party to several FTAs that the regional trade bloc has signed as following:
· ASEAN Free Trade Area (AFTA)
· World Trade Organization (WTO)
· The U.S.-Vietnam Bilateral Trade Agreement (BTA)
· EU-Vietnam Free Trade Agreement (EVFTA)
· Trans-Pacific Partnership (CPTPP)
Two such pacts that are slated to come into effect in 2019 and could have a profound impact on the economy are the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the European Union-Vietnam Free Trade Agreement (EVFTA). According to the Vietnamese Ministry of Planning and Investment, the CPTPP could raise Vietnam’s GDP by 1.3 percentage points and exports by 4.0 percentage points by 2035, while the EU considers that the EVFTA could lift Vietnam’s GDP by 15%.
These two deals, along with other FTAs which will likely come in the future, should help ensure that the next 30 years are just as positive.
Vietnam has become Asia’s hottest investment destination
With a record US$19.1 billion in foreign direct investment (FDI) disbursement in 2018, Vietnam has become Asia’s hottest investment destination, according to a Forbes report.
Following this, data from the Foreign Investment Agency under the Ministry of Planning and Investment showed foreign investors registered to pour US$8.47 billion into Vietnam in the first two months of 2019, 2.5 times higher than the same period of last year. Disbursement of FDI projects also rose by 9.8 per cent year-on-year to $2.58 billion, hitting a three-year record high.
Notably, foreign investment in science and technology surged sharply, helping it for the first time ranked third in the hottest sectors in the country’s FDI attraction. The positive move is continuing this month with many provinces and cities consecutively announcing licences for high-quality projects.
Infrastructure has been a central factor of Vietnam’s fast-paced economic development. However, economic growth is putting increasing pressure on Vietnam’s infrastructure. Freight volumes are expanding rapidly. Road traffic has increased by an astounding 11 percent annually and the demand for energy is expected to grow by about 10 percent per year until 2030.
Demand for transportation assets benefits from strong GDP growth due to a rapidly growing middle class, increasing urbanization and improving connectivity in Vietnam, with future growth rates expected to outstrip GDP growth. Road and rail network investment will be key to drive infrastructure investment across other sectors in Vietnam. Demand for these assets reflects strong traffic and freight volumes supported by strong and sustained economic growth as well as increasing connectivity and improving logistics.
The growth outlook for the next three years remains robust at around 6.6 percent, providing the perfect opportunity for Vietnam to continue making its infrastructure more productive—especially in energy, transport, and telecommunications—and so generating the jobs and prosperity its people seeks and wants. Vietnam already invests much in infrastructure—almost double the global average—but keeping up with its fast-paced economic growth and development will demand even higher levels.
These developments would be attractive to foreign investors in a general sense.
Tax Incentives for Foreign Investment in Vietnam
Tax incentives have been applied consistently to stimulate investment, especially for the inflows of FDI in Vietnam. It can be seen that reductions in tax obligations while increasing tax incentives in some investment sectors and locations have created favourable conditions for the enterprises to increase capital accumulation, expand manufacturing and speed up the economic growth in Vietnam in the past more than two decades of economic reform.
FDI enterprises enjoy a wide range of incentives when operating in Vietnam, including tax incentives that allow them to pay only 10.7% in corporate tax on average, compared to 20 percent for regular businesses
In the upcoming revision of its incentive policies for FDI enterprises, Vietnam will focus on attracting foreign investment into areas of manufacturing with high added value and technological content.
Lately, many world big corporations start pouring investment into Vietnam. Here are some examples of companies having their presence/ planning to invest in Vietnam:
April 2018, Indian firms strengthen renewable energy investment in Vietnam
Indian giants, including TATA Group, Adani Green Energy Ltd., and Suzlon Energy Ltd. set foot in Vietnam very early after the country opened its doors for foreign investment. TATA Group's solar power project in Binh Phuoc province is the latest Indian investment project. Its total capacity is 49 megawatts and is located on 55 hectares in Loc Ninh district of the southern province. To date, India has 176 projects in Vietnam with the total investment of $814 million
April 2018, The Samsung Electronics factory in Thai Nguyen, in northern Vietnam, employs more than 60,000 people. Its three canteens serve some 13 tonnes of rice a day. It churns out more mobile phones than any other facility in the world. It and Samsung Electronics’ other factories in Vietnam produce almost a third of the firm’s global output. The company has invested a cumulative $17bn in the country.
Its local subsidiary’s $58bn in revenue last year made it the biggest company in Vietnam, pipping PetroVietnam, the state oil company. It employs more than 100,000 people. It has helped to make Vietnam the second-biggest exporter of smartphones in the world, after China. Samsung alone accounted for almost a quarter of Vietnam’s total exports of $214bn last year.
November 2018, Thailand’s TCP Group to invest US$120 million in Vietnam in 3 years
The company owns several brands of energy drinks, including Krating Daeng (Red Bull), Som Plus, Sponsor, Puriku, as well as “Warrior”, its latest product geared for the Vietnamese market. The opening of the office in Vietnam is part of the group’s five-year plan announced in 2017 to triple its total sales to over US$3 billion annually, said Yoovidhya.
March 2019, American Universal Alloy Corporation and Alton International Enterprises were approved to build high technology parks
The central city of Da Nang said it licensed two projects of American giants – leading global manufacturer of aircraft components American Universal Alloy Corporation and electronics manufacturer Alton International Enterprises – to set up their production bases at its hi-tech parks while some others also from the US, such as Key Tronic EMS, are also proposing projects in the park.
Early 2019, Ikea planned to invest US$450 million
Hanoi City also expected to receive Ikea as the Swedish furniture giant plans to invest US$450 million in a retail centre and warehouse system in the capital.
2019 - Lenovo Group proposed a plan building a computer factory
In the northern province of Bac Giang, Lenovo Group from China also expressed a desire to develop a computer component factory during a recent meeting with local authorities. The group said it would need 20-30ha of land for the factory’s development and its products would be exported to the US, the provincial portal reports.
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